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Ukraine: Industrial production records smallest contraction in nearly a year and a half

December 23, 2015

In November, industrial production fell 4.9% over the same month last year, according to data released by the State Statistics Service of Ukraine. The result was an improvement from October’s 5.0% decrease and marked the most moderate contraction since June 2014. Yet, November’s result still marked the 23rd consecutive month of decline amid the geopolitical tensions in the country. Significant contractions—albeit moderate in the context of recent data—were recorded in manufacturing and in electricity, steam, gas and air conditioning. In addition, mining and quarrying dropped over the same month last year.

The ongoing crisis between the Ukrainian government and pro-Russian separatist groups has had a large negative impact on industry, which is already weak. The conflict has been centered in the eastern regions of Luhansk and Donetsk, Ukraine’s industrial heartland, which had been plagued with steep contractions for the majority of the conflict. However, in November, industrial production in Luhansk expanded a notable 61.0% over the same period last year. Yet, this improvement partly reflects a base effect due to the sharp drop in production recorded in November 2014 as a result of escalated fighting. In contrast, industrial production in Donetsk fell 13.0% in November.

On a monthly basis, industrial production fell a seasonally-adjusted 1.7% in November, which contrasted October’s 7.3% increase. The annual average variation in industrial output in November improved for a fourth consecutive month, confirming the end of the uninterrupted downward trend that had been in place since May 2014, rising from minus 15.6% to minus 14.7%.

Met the why particular Consensus Forecast participants’ project that industrial output will plummet 14.4% in 2015, which is unchanged from last month’s forecast. For 2016, panelists expect industrial production to rise 2.8%., which is down also unchanged from last month’s forecast.

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According to data released by the Statistical Institute, industrial activity fell 0.5% in December over the same month of 2016, reverting to contractionary territory after expansions of 0.3% and 0.4% in November and October, respectively.

At its meeting on 25 January, the National Bank of Ukraine (NBU) in a surprise move announced its decision to hike the key policy rate from 14.50% to 16.00%, marking the third consecutive rate hike since October.